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Full text of "ANNUAL REPORT - ONTARIO ENERGY BOARD 1964"



FIFTH ANNUAL REPORT 



OF 



THE ONTARIO ENERGY BOARD 



YEAR ENDING DECEMBER 31, I964. 




ONTARIO 



TELEPHONE 

365-2851 



ONTARIO ENERGY BOARD 



790 BAY STREET 

TORONTO Z 



January 29, I965. 



Sir: 



I beg to submit the Annual Report for 
I964 of The Ontario Energy Board, and I have the 
honour to be, Sir, 



Yours faithfully, 



■-^fC^i^^*^ 



A. R. Crozier, 

Chairman. 



The Honourable J. R. Simonett, 

Minister of Energy and Resources Management , 

Parliament Buildings, 

Toronto, Ontario. 



INTRODUCTION 

The regulatory decisions and orders of the Ontario 
Energy Board are concerned with matters of greater economic 
significance, in terms of dollars and in terms of people 
affected, than is generally realized by the public. Moreover, 
the Board's concern does not end with the issuance of a decision 
or order, but in fact only begins. Since the Board has a 
continuous regulatory responsibility, it must continue to 
live with the consequences of every decision long after it 
has been handed down. 

To illustrate the extent of the Board's decisions, 
in the four major rate cases decided since September 1, i960, 
consumer rates were approved or fixed, involving annual gas 
sales revenues exceeding $91 million. The rate bases determined 
aggregated just under $270 million. As of September 30, I964, 
there were approximately 63^,600 gas customers in Ontario, 

Since the inception of the Ontario Energy Board in 
i960, many millions of dollars have been expended by Ontario 
gas utilities on the construction of pipe lines or distribu- 
tion systems, which could only be carried out after hearings 
for leave to construct pipe lines, or certificates of public 
convenience and necessity. A lesser amount, but still a con- 
siderable sum of money has been expended in the development 
of underground natural gas storage facilities. 



:o. 



• ■ 



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The Board's responsibilities with respect to "the 
public interest" consist, fundamentally, of balancing the 
several rights of the utility investors with those of the 
consumer, and in the case of storage operations, with those 
of the landowner. 

HEARING STATISTICS 

One of the main functions of the Energy Board is 
to fix and approve, after public hearing, the rates and 
charges for the sale, transmission, distribution and storage 
of gas in the Province. Other functions are the granting of 
leave to construct transmission pipe lines, authority to 
expropriate pipe line rights-of-way, authorization to store 
gas in designated areas, granting approval of the terms and 
conditions of by-law franchise agreements, and granting 
certificates of public convenience and necessity. In addition, 
the Board examines and reports on any matters relating to 
energy which may be referred to it by the Lieutenant Governor 
in Council or the Minister of Energy and Resources Management . 

During the year, the Board heard 23& applications, 
and held 56 Board meetings. The Board also devoted its 
attention to the writing of reasons for decision;- a report 
to the Lieutenant Governor in Council on gas storage matters; 



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drafting recommendations for amendments to the legislation 
and the preparation of rules of procedure and regulations 
under the new Act. 

The following is a breakdown of the hearings which 
have been held during the year: 

The Ontario Energy Board Act 

Rates (section 17) 16 

Abandonment of service (section 21) 1 

The Energy Act 

Leave to Construct pipe lines (section 11) 6 

Expropriations for pipe line rights-of-way 205 

Designation of gas storage areas (referred by 
Lieutenant-Governor in Council) 1 

Unitization or Joining of Interests (referred 

by Lieutenant-Governor in Council) 1 

Deepening of existing wells in designated gas 

storage area (referred by Minister) 1 

Permission to drill wells in designated gas 

storage areas (referred by Minister) 7 

In addition to the above hearings, several days of 
sitting were required to complete the 'Northern Ontario Natural 
Gas rate case which began late in I962 and the commencement 
of the Lakeland Natural Gas rate hearing which is still in 
progress „ 



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Throughout the year 253 applications were filed as 
compared with $7 in the previous year. Of these 23$ were 
heard, 15 were withdrawn and 1+ will be heard in I965. 

Each year the Board obtains from the transmission 
companies in the Province information pertaining to the 
footage and diameter of all transmission pipe lines owned 
and operated by them in any municipality. This data, which 
is used for assessment purposes, is then forwarded to the 
respective assessors of approximately eight hundred munici- 
palities . 

NORTHERN ONTARIO - TWIN CITY GAS RATE CA SE 

This was a joint application of Northern Ontario 
Natural Gas Company Limited, and its subsidiary, Twin City 
Gas Company Limited. None of the respondent municipalities 
t _ok any part in the hearing, although, from time to time, 
counsel for certain municipalities were present, and made 
oral representations. As stated in last year's Annual Report, 
this was one of the most complex rate cases the Board has yet 
encountered, presenting some entirely new regulatory problems. 
The record of evidence, covering over 500 pages of transcript, 
contains sworn testimony from nine expert witnesses, forty-two 
exhibits, and argument by counsel. 



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Based upon this record, the Board issued its Decision 
dated March 2, I964. The Board found that for the I96I test 
period, the Applicants earned a return of $2, 18$, 542 upon a 
year-end rate base of $35,722,197 which represents an experienced 
rate of return of 6.13 per cent. 

As noted in the Board's Decision, a review of the 
financial information for the subsequent two years, indicates 
that the experienced returns for those subsequent periods is 
still within acceptable limits, and accordingly, the Board 
decided that the rates applied for were just and reasonable. 

This Decision and Order, which runs to 2+1 pages, is 
in printed form and sets out in detail, the reasons for the 
Decision, and how the Board has treated such items as plant 
valuation, depreciation, working capital allowances, donations, 
income taxes, and other rate base and expense items. 

LAKELAND NATURAL GAS LIMITED RATE HEARING 

The application by Lakeland for an order approving 
or fixing just and reasonable rates for the sale of gas is some- 
what unique as it is the first application before this Board 
seeking the inclusion of an adjustment clause in certain rate 
schedules providing machinery for upward or downward rate adjust- 
ments related to variations in the cost of gas to the distributor, 



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Although all the respondent municipalities were served with 
the application and notice of hearing, none of them filed any 
answer to the application, or appeared, or was represented at 
the hearing, or in any way took part in any of the proceedings. 

In this hearing, as in Northern Ontario-Twin City 
Gas rate case, there are a number of complex regulatory pro- 
blems peculair to relatively new natural gas utilities. 

The hearing which commenced in June, I961+ and 
reconvened in August was adjourned sine die on August 28th 
to permit the company to prepare more information with respect 
to plant costs as requested by the Board. As in all major 
rate cases there is a complete transcript of the proceedings. 

It is expected that the hearing will be reconvened 
early in I965 and that the Board's written Reasons for Decision 
and order will be available in due course. 

GAS STORAGE REPORT 

With the growth in the use of partially depleted 
gas fields for the storage of natural gas in the Province 
and the dissatisfaction of the landowners with payments being 
made by storage operators, the Government directed the Board 
to investigate and report thereon. 



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Following meetings with landowners in Ontario and 
with several gas storage operators both in Ontario and in 
certain states in the U.S.A., and the examination of briefs, 
the Board filed its report which the Government released on 
August 6, 196^. The principles in the report are intended 
to serve as a guide to both landowners and storage operators 
in any negotiations or renegotiations of annual storage 
payments . 

Part 1 of the report outlines certain principles 
to be considered in arriving at the compensation to be paid 
for storage rights and a method of calculating the annual 
storage payments. Part 2 of the report sets out certain 
recommendations regarding the form and content of oil and 
gas lease agreements and gas storage agreements. It is to 
be hoped that the report will lead to the introduction and 
use of a new form of lease agreement . 

DESIGNATION OF GAS STORAGE AREAS 

An application by The Consumers' Gas Company for a 
regulation to designate a gas storage area was referred to 
the Board by the Lieutenant-Governor in Council. 



-e- 



The area in question covers approximately 17&2 acres 
and is located in Humberstone Township and is known as the 
Crowland Pool. 

Following a public hearing, the Board in its report 
to the Lieutenant-Governor in Council recommended that a regu- 
lation be passed designating the area as a gas storage area. 

A regulation was duly made, thus providing a potential 
storage capacity of approximately 750 million cubic feet for 
the use of Provincial Gas Company Limited a wholly owned sub- 
sidiary of The Consumers' Gas Company. 

CONSTRUCTION OF PIPE LINES 

Orders granting leave to construct l6o miles of 
transmission lines were made during the year. Four of the 
Orders were for replacement of old lines. Permission was 
granted to Tecumseh Gas Storage Limited to construct a 30-inch 
high pressure line to link the Tecumseh storage facilities in 
Moore Township to the Ontario Natural Gas Storage and Pipe- 
lines Limited transmission system. This line was built at 
an estimated cost of $1.5 million and will have a capacity 
of approximately 1 billion cubic feet of gas per day. 



■9- 



By far, the major pipe line project was the construc- 
tion of the first section of a 12+2-mile 34-inch line undertaken 
and completed by Ontario Natural Gas Storage from its compressor 
station in Dawn Township, to the City of London branch line, 
a distance of 56 miles. Following three days of hearing, 
the Board granted permission for construction of the entire 
line which will be built in four stages at a total estimated 
cost of $22+. 5 million. There is provision that construction 
of the fourth stage from Hamilton to Oakville cannot be 
commenced without further approval of the Board. This 32+-inch 
line, which parallels a 26-inch line built in 1957, is 
essential to meet increased demands during winter peak periods 
and will carry gas for Ontario Natural Gas Storage and other 
Ontario utilities to and from storage facilities in Lambton 
County . 

EXPROPRIATION HEARINGS 

The Board held hearings in the City of London for 
the expropriation of 205 parcels of land along the route of 
the 32+" pipe line constructed by Ontario Natural Gas Storage 
and Pipelines Limited. Expropriation was necessary due to 
the failure of the applicant company and certain landowners 
to successfully negotiate an easement agreement. 



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It should be pointed out, however, that in pipe 
line expropriations the Board does not settle matters of 
compensation, which are referred to a Board of Arbitration 
appointed by the Minister under the Energy Act. 

In connection with the construction of the 3V 
pipe line the Government appointed an inspector specifically 
to ensure compliance with the terms and conditions outlined 
in the Board orders granting; authority to expropriate and 
leave to construct. Working closely with the Board and its 
staff the inspector functioned as a valuable intermediary 
between the Government, the company and the landowner. 

DRILLING IN DESIGNATED GAS STORAGE AREAS 

On reference by the Minister of Energy and Resources 
Management, the Board heard applications to deepen existing 
wells and to drill additional wells in the Dawn #156, Kimball- 
Colinville, Payne, Seckerton and Waubuno designated storage 
areas in Lambton County. Applications were made for the 
deepening of 6 wells and the drilling of 21 new wells within 
these areas . 

Following public hearings, the Board recommended 
that the permits should issue. 



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JOINING OF ROYALTY INTERESTS 

An application by BP Exploration Canada Limited for 
a regulation requiring and regulating the joining of various 
interests within a spacing unit in the Township of Gosfield 
South for the operation of an oil well was referred to the 
Board by the Lieutenant-Governor in Council. 

BP Exploration, the operator of the well, had been 
unable to reach an agreement for the sharing of royalty 
interests with the four lessors within the spacing unit. 

Following a public hearing in the City of London, 
the Board in its report to the Lieutenant-Governor in Council 
recommended the establishment by regulation of a new spacing 
unit and the joining of the royalty interests therein. The 
regulation was subsequently made. 

CHAMPION PIPE LI NE I NTERVENTION 

On October 15, I964, Champion Pipe Line Corporation 
Limited, a wholly-owned subsidiary of Northern Ontario Natural 
Gas Company Limited, applied to the National Energy Board in 
Ottawa, for a certificate granting it leave to construct and 
operate an 8-inch gas pipe line from Earlton, Ontario to a 
point in or near Rouyn, Quebec. The proposed pipe line would 



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transport gas belonging to Northern Ontario Natural Gas to 
another wholly-owned subsidiary, Le Gaz Provincial du Nord de 
Quebec Ltee for resale to the consumers of Le Gaz. 

A copy of this application together with certain 
supporting information, was served upon the Ontario Energy 
Board and the Attorney-General. The Attorney-General for 
Ontario intervened in opposition to the proposed arrangements 
under which this line would be operated. The Board and its 
staff assisted counsel for the Attorney-General in the pre- 
paration of the submission and Board staff were present at 
the hearing. 

The National Energy Board set the application down 
for hearing at Rouyn, Quebec on December 15, 16 and 17. 
Representations were made by the Attorney-General for Ontario, 
the Attorney-General for Quebec, Trans-Canada Pipe Lines 
Limited, and of course, the Applicant. 

Following the presentation of all evidence and 
examination of witnesses, the National Energy Board closed 
the hearing on December 17, and was pleased to reserve its 
decision, which is still pending. 



•13- 



LEGISLATION 

At the I964 Session of the Legislature, the Board 
recommended that The Ontario Energy Board Act be revised and 
up-dated in the light of experience in order to improve its 
administration. As a result, The Ontario Energy Board Act, 
I964, introduced as Bill i+7, received Royal Assent. 

Basic revisions in the new Act were the addition of 
an interpretation section, thus making the Act self-contained;- 
clarification of the Board's powers (sections 13, 15, 19 and 
23); certain strengthening of the gas storage provisions 
(sections 20 and 22); the transfer from The Energy Act to Part 
II of the Act, of all sections pertaining to leave to construct 
pipe lines and authority to expropriate land therefor; amend- 
ment to the section dealing with an appeal to the Lieutenant- 
Governor in Council from Orders and decisions of the Board 
(section 33 ) • 

The new Act has been proclaimed in force as of 
January 1, I965. Accordingly, new regulations were made and 
these became effective simultaneously with the new Act. 

CONFERENCE OF CANADIAN PUBLIC UTILITIES COMMISSIONERS 

On October 1 and 2, representatives of nine Provinces 
met in Toronto to discuss utility regulatory matters of common 



-12+- 



interest. This conference was the second held in Ontario, and 
was presided over by Mr . A. R. Crozier, Chairman of the Ontario 
Energy Board. 

Technical papers were presented by delegates from 
the public utilities boards of other Provinces on regulatory 
treatment of income taxes and consumer rates. Full discussion 
took place of these and other related problems . 

It v/as unanimously agreed by all Provinces that the 
exchange of ideas and viewpoints at these Conferences produces 
results which justify the holding of future informal meetings . 
The I965 Conference will be held in the Province of Newfoundland. 
It is not proposed, at this time, however, to organize a Canadian 
counterpart of the National Association of Railroad and Utilities 
Commissioners, although some occasional contact with that American 
body may be helpful to the Provinces. 

PERSONNEL 

There has been no change in the membership of the 
Board and it has continued to operate with a full-time Chair* 
man and three part-time Members. 

The staff of the Board has been strengthened by the 
appointment of Mr. Ian C. MacNabb, P. Eng., as Board Engineer. 
He has had 11 years' experience in the natural gas industry 
with a major utility company.